Selling stocks before you purchase them with the hope of buying them at a lower price later is known as what?

• A. Short Selling
• B. Long Position
• C. Market Order
• D. Stop Order

Answer: (A)

Short selling is selling borrowed shares today with the plan to buy them back later at a lower price. You don’t own the stock upfront; you borrow it, sell it to lock in the current price, and then hope to repurchase at a cheaper price to return the shares to the lender. If the price falls as hoped, you buy back cheaper, keep the difference minus fees, and the transaction is profitable. If the price rises, losses can be substantial since there’s no limit to how high the price can go, and you must cover the borrowings plus interest and margin requirements. This differs from taking a long position, where you buy shares upfront hoping their price will rise. A market order simply executes immediately at the current price, and a stop order triggers a trade only when the price reaches a specified level, not the act of selling first to profit from a drop.